What is strategic decision making and what does it involve?

One of the previous articles wrote on the importance of Operational decisions and the role that they play in any business. This article discusses more on strategic decisions and why strategic decision making is important for any organization.

Strategic decisions are basically long term decisions, which affect the way the company moves forward. So for example, a business makes a strategic decision to become the top product manufactures; in such a case the company is likely to concentrate on making consumer focused products. On the other hand, if the company decides to become the top supplier to OEM’s, then it will have its focus on mass manufacturing and supplying the maximum products to the OEM.

To summarise, strategic decision making involves the following 3 things

Overall, a firm can move forward only if it has taken the necessary strategic decisions. Furthermore, whether the decisions were right or wrong, can only be proved only over a long period of time. If these decisions were right, and had great insight in the future, then the company can be very successful. However, if these strategic decisions did not consider empirical evidence of the current market conditions, then the firm can fail badly.

1) Strategy is at many times at tangent with marketing decisions

Where marketing decisions are short term, strategic decision making might consider a long term initiative, such as launching a very new and innovative product, or changing the existing product lines radically. Technology or innovation is at the crux of strategic decision making.

The reason that marketing decisions and strategy decisions are difference is because marketing is focused on retaining the existing customer base with the existing technologies. But the customer base is sure to get tired soon of the existing products and the innovators and adopters will keep searching for new products in the market. And hence, through strategic decisions, the firm has to stay in a place of continuous development.

2) There is immense risk involved while taking strategic decisions

Naturally, when you are implementing plans which will show positive or negative results only after 4-5 years, the risk in strategic decision making is huge. Think about the time and energy, not to say natural resources wasted to implement a plan which failed after 4-5 years.

Yet, even after the risk involved, companies have to implement risky strategic decisions from time to time just because the directors thought a unique product had demand in the market, or that another product is required in the market. Strategic decisions involve necessary risk and success is not guaranteed.

3) Strategic decisions involve a lot of Ifs and Buts

Think of a mind map and the number of branches and nodes that can form the complete mind map. When a brain starts thinking, the central thought might have further branches, and these branches will have even more nodes (or sub branches if you want to call them)

Similar to the mind map, a business can face many problems in the course of its run. A competitor can crop up, the market can become penetrative, the external environment can change, and many other unforeseen situations can happen. The strategic decision making has to consider all these alternatives, whether positive or negative. And the plan has to also include the action that the firm will take, if any of the above business problems or factors come into play.

Whenever we make a schedule in our personal lives, we always start things when we have enough time in our hand. For example – you will plan a holiday, when office work is not hectic. You will not plan it when there is a product launch nearby. Similarly, when in business, timelines are very important.

If a product is to be launched, the launch date is decided at least a year back, the sales phase has to be implemented at least 2 months before the actual launch so that you have sellers in place when the product is launch. Moreover, the service network is also to be planned before the launch, so that service issues are sorted out when there are problems after the product launch. If these concepts are not implemented, the marketing strategy and hence the product can fail miserably.

5) Preparing for the competition’s response

Whenever you change the market equilibrium, the competitors, whose businesses you have directly challenged, are sure to respond. When they respond, the market changes and you have to change your strategy accordingly.

In general there are 2 ways that a company directly affects the competition and the market.

a) The company creates a completely new operating norm in the market itself.

Most strategic decisions will call for radical changes in the way the company operates in the existing market. Accordingly, the perception of competitors and customers will change for the company. The company has to in turn be prepared for the response of competitors in such a case.

Implementation of strategic decisions – While implementing strategic decisions, you need to have eyes at the front as well as the back of your head. You need to look at what was decided at the start, as due to short term pressure, it is very much possible to deviate from the path which was already set.

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